Gratuity Calculator: What will be your gratuity on Rs 40,000 last-drawn basic salary and 5 years 2 months of service?
Gratuity is a crucial financial benefit under the Payment of Gratuity Act, 1972. Learn eligibility criteria, calculation formula and how to estimate your gratuity based on last-drawn salary and service years.
Gratuity is a significant financial benefit that ensures monetary security post-employment. Governed by the Payment of Gratuity Act, 1972, it is payable upon retirement, resignation or termination. Employees completing at least 5 years of service in organisations with 10 or more employees qualify for gratuity. The amount depends on the last-drawn basic salary and total service years. This guide explains gratuity eligibility, calculation formula, and step-by-step gratuity estimation.
What is gratuity?
Gratuity is a financial benefit paid by employers under the Payment of Gratuity Act, 1972. It ensures financial security upon retirement, resignation or termination.
Who is eligible for gratuity?
Employees who have completed at least 5 years of continuous service in an organisation with 10 or more employees qualify for gratuity.
Minimum service requirement
An employee must complete 5 years of continuous service. If the service includes at least 6 months in a year, it is rounded up to the next full year.
When can you claim gratuity?
Gratuity is payable in cases of:
- Resignation
- Retirement
- Superannuation
- Termination
- Disablement
- Death (paid to nominee or family)
Can an organisation opt out of gratuity?
No, once an organisation qualifies under the Gratuity Act, it must comply with the law and cannot opt out.
How are service years counted?
- Example 1: 5 years and 4 months → Counted as 5 years
- Example 2: 6 years and 6 months → Counted as 7 years
Gratuity calculation formula
The standard gratuity formula is:
Gratuity = (Last Drawn Salary × Number of Years of Service × 15) ÷ 26
- 15 represents 15 days' wages per year
- 26 represents working days in a month (excluding Sundays)
Factors affecting gratuity amount
Two key factors determine the gratuity payout:
- Last-drawn basic salary
- Total years of service (rounded as per the rule)
What will be your gratuity on Rs 40,000 last-drawn basic salary and 5.2 years of service?
For an employee with a last-drawn basic salary of Rs 40,000 and 5 years & 2 months of service (rounded to 5 years):
- Gratuity = (40,000 × 5 × 15) ÷ 26
- Estimated gratuity: Rs 1,15,384
Why Is gratuity important?
Gratuity acts as a financial safety net post-employment. Knowing how much you’re entitled to helps in better financial planning. Use a gratuity calculator for precise estimates.